The U.S. – South Korea FTA

For decades, South Korea has employed a unique and ever changing regulatory regime to discriminate against auto imports, while the U.S. market has been open to their goods.  As a result, U.S. automakers exported less than 14,000 cars to South Korea in 2010.  In contrast, South Korean automakers have been able to use their historically closed market to finance an aggressive push into the U.S. market, through both exports (515,000 cars in 2010) and transplant production.  In 2009, automotive trade accounted for more than 75 percent of the U.S. trade deficit with South Korea.

The Bush administration ignored Congressional and stakeholder calls to ensure the FTA meaningfully opened South Korea’s auto market during negotiations.  As a result, the FTA signed in 2007 would have locked in one-way trade in South Korea’s favor.  

Last year, with the support of key Members of Congress and the automakers and the UAW, the Obama Administration negotiated an additional agreement that will provide U.S. automakers with a real opportunity to compete and succeed in the South Korean market.  With the changes achieved through the additional agreement, the U.S. auto industry (Ford, Chrysler, GM and the UAW) are supporting the U.S. – South Korea FTA.

Key elements of the December 2010 autos deal include:  

• Tariffs.  Unlike the 2007 agreement, which immediately eliminated duties on almost 90% of South Korea’s auto exports, duty elimination for South Korea’s auto exports is now delayed until year five.  The delay gives U.S. automakers the opportunity to reverse decades of South Korean protectionism, providing important time to establish a brand and distribution presence and leverage to evaluate South Korea’s compliance.  Cuts in the U.S. 25% truck tariff, which started immediately under the Bush negotiated FTA, are now delayed for eight years.  
• Safeguard.  The agreement includes a first-ever auto-specific safeguard designed to protect against potential surges of South Korean cars and trucks, once the applicable tariffs are eliminated.
• Safety and Environmental Standards.  The new agreement levels the playing field and prevents Korea from relying on discriminatory, rotating safety and environmental regulations – as it has in the past – to shut out U.S. auto imports.

Additionally, because of changes negotiated by House Democrats and the Bush Administration in May 2007, the Korea FTA Free Trade Agreement includes fully enforceable labor and environmental commitments.

The U.S. – South Korea FTA is an example of how to do a trade agreement right.  There were legitimate and serious concerns with South Korea’s use of non-tariff barriers to shut U.S. automakers out of the South Korean market.  Rather than ignoring those concerns, the Obama Administration addressed them.  The accompanying agreement entered into between the United States and South Korea this past December will end one-way trade in autos and secure meaningful market access for U.S. automakers

The U.S. – South Korea FTA is the most commercially significant trade agreement that the United States has signed in over a decade.  The ITC estimates that implementation would add $10 – $12 billion to annual U.S. GDP and at least $10 billion in additional annual exports. Estimates indicate that it will create tens of thousands of new jobs.  Importantly, the agreement will also further strengthen the critical and historic alliance between the United States and South Korea.